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Does Production Labeling Stigmatize Conventional Milk?

Author
Kanter, Christopher
Abstract
Production labeling is a common approach for differentiating otherwise similar
products in the marketplace. While these labels may convey positive messages to
consumers about the new product, they may simultaneously stigmatize the
conventionally-produced product by highlighting perceived problems. The net
economic result for producers can be negative since consumers may decrease their
willingness to pay for the conventional product that dominates the market, while the
new product has a relatively small market share. This research identifies this stigma
effect in the case of milk, where the introduction of rBST-Free and organic milk
reduces consumers’ willingness to purchase conventional milk.
In this thesis, the question of whether production labeling is driving
consumer’s bias against conventional milk is investigated in an experimental setting
by eliciting the willingness to pay in a sample of Cornell University staff and graduate
students for milk produced via different production methods and of varying fat
contents. Through altering the order in which participants bid for the different types
of milk and analyzing the resulting data using a two-limit random-effect Tobit model
with instrumental variables, we find that consumers are indeed willing to pay a
premium for rBST-Free and organic milk despite a lack of scientific evidence
regarding harmful effects of rBST on human health.
The results illustrate that, by varying the order in which experiment
participants were allowed to taste and learn information about milk produced using
different techniques, we are able to demonstrate that participants were willing to pay
less for milk produced using rBST after being exposed to rBST-Free and organic milk,
and likewise, willing to pay more for rBST-Free and organic milk after being exposed
to milk produced using rBST. In a situation where milk produced using all three
techniques is available, the end result is a higher price charged for rBST-Free and
organic milk and decreased revenue for farmers and distributors who deal in milk
produced using hormones. The implications of the experiment are fairly
straightforward – production labeling can indeed be a strong influence on consumer’s
perception of a good, and producers of conventional goods in markets where
alternative products are being introduced need to be aware of the potential impact of
the availability of the new product on the demand for the conventional product.
Date Issued
2010-04-09Type
dissertation or thesis